Best-Case Projections For TPP Show Few Benefits, Worse Trade Deficit

The U.S. International Trade Commission (ITC) has released a report predicting the effect the Trans-Pacific Partnership (TPP) will have on the U.S. economy. In the past these reports have been skewed to promote trade agreements, with numbers that turned out to be much better than what actually happened.

Even with this history of exaggerated promises of benefits from trade agreements, the ITC says that TPP won’t do all that much for our economy, and will make the trade deficit worse. The ITC report says TPP will increase the U.S. trade deficit by over $21 billion per year and will harm employment in key industries.

ITC Reports Have History Of Rosy Projections

In the past the ITC reports have made flowery promises about what will happen when we sign trade agreements. The actual results varied considerably and were much worse for the U.S. than projected.

A study released last week by Public Citizen looked at past ITC projections of what would happen if we entered into trade agreements. The study looked at the ITC’s promises about NAFTA (the North Atlantic Free Trade Agreement), China’s entry into the World Trade Organization and the Korea-U.S. agreement. It found that the ITC predictions on each pact was inaccurate, always projecting a much better outcome than actually occurred.

According to a Public Citizen news release accompanying the study:

The USITC predicted improved trade balances, gains for specific sectors and more benefits from the 1993 North American Free Trade Agreement (NAFTA) and 2007 U.S.-Korea Free Trade Agreement (FTA) in reports on those pacts. The agency projected only a small deficit increase from China’s 1999 World Trade Organization (WTO) entry deal and the granting to China of permanent normal trade relations status.

Instead, the U.S. trade deficits with the trade partners increased dramatically and, as detailed in the text of the new study, manufacturing industries from autos to steel and farm sectors such as beef that were projected to “win” saw major losses. A government program to help Americans who lose jobs to trade certified 845,000 NAFTA jobs losses alone and econometric studies concluded that millions of jobs were lost from the China deal, in contrast to gains projected by the USITC reports.

This is a summary of the results:

NAFTA: Before NAFTA, the U.S. trade had a $2.6 billion goods trade surplus (services data was not available). The ITC predicted NAFTA would create a $10.6 billion goods and services surplus. Instead in 2015 we had a $57 billion goods and services deficit.

China: Before opening WTO trade with China, we had a $113 billion trade deficit.The ITC predicted this would grow to $120 billion. Instead in 2014 we had a #340 billion trade deficit with China.

South Korea: We had a $5.8 billion deficit. ITC predicted the agreement would cut that to a $2.5 billion deficit. But instead we had a $16.8 billion deficit.

… The model estimated that TPP would have positive effects, albeit small as a percentage of the overall size of the U.S. economy. By year 15 ([032), U.S. annual real income would be $57.3 billion (0.23 percent) higher than the baseline projections, real GDP would be $42.7 billion (0.15 percent) higher, and employment would be 0.07 percent higher (128,000 full-time equivalents). U.S. exports and U.S. imports would be $27.2 billion (1.0 percent) and $48.9 billion (1.1 percent) higher, respectively, relative to baseline projections. U.S. exports to new FTA partners would grow by $34.6 billion (18.7 percent); U.S. imports from those countries would grow by $23.4 billion (10.4 percent).

And later in the summary, get this: “… agriculture and food would see the greatest percentage gain relative to the baseline projections; output would be $10.0 billion, or 0.5 percent, higher by year 15.”

Got that? The greatest gain our country would see from TPP is one half of one percent in the agriculture and food sectors, but only after 15 years.

The ITC report estimates U.S. economic growth gains would be $42.7 billion or 0.15 percent and income gains of $57.3 billion or 0.23 percent by 2032. Public Citizen explains how modest this is: “In other words, the ITC projects that the United States would be as wealthy on January 1, 2032 with TPP as it would be on February 15, 2032 without the TPP.”

It estimates a decline in output for U.S. manufacturing/natural resources/energy of $10.8 billion as exports would increase by $15.2 billion and imports would increase by $39.2 billion by 2032. This translates to a loss of even more U.S. jobs in these key sectors.

Keep in mind that this ITC report assumes that there will be a “level playing field” on which other TPP countries will not manipulate currency, suppress labor or other things that hurt American jobs. It also assumes that the countries will buy from us (trade) instead of following national economic strategies to enhance key national strategic industries by selling to us but not buying from us. Of course, this is not what happens in the real world, other countries protect themselves as countries with key national economic interests; we do not.

These are only the economic projections from TPP. They do not take into account that most of TPP is not about the economic results from “trade”; it is about enhancing the power of corporations over governments. Even if TPP dramatically increased economic activity (which all goes to a few at the top now anyway) it would not be worth handing over our democracy and sovereignty to the billionaires behind the giant corporations.

Statements

A statement from House Ways and Means Committee Ranking Member Sander Levin (D-MI) begins:

My initial review of the ITC report only confirms my position that I cannot support TPP as negotiated.

“It is deeply troubling to read that overall U.S. manufacturing employment is expected to decline as a result of the agreement, and that the overall U.S. trade deficit is expected to worsen too, including in the auto and auto parts industry. And the ITC appears to confirm my concern that the weak automotive rules of origin in the agreement will result in lost auto parts jobs in the United States.

The AFL-CIO released a statement titled, “ITC Report Shows TPP Is Disastrous for Working Families”:

This ITC report is so damaging that any reasonable observer would have to wonder why the Administration or Congress would spend even one more day trying to turn this disastrous proposal into a reality. Even though it’s based on unrealistic assumptions, the report could not even produce a positive result for U.S. manufacturing and U.S. workers. One of many shockers is just how meager the purported benefits of the TPP are. A mere .15% of GDP growth over 15 years is laughably small—especially in comparison to what we’re being asked to give up in exchange for locking in a bonanza of rights and privileges for global corporations. Even though the report fails to account for currency manipulation, wage suppression and the negative impacts of uninspected food imports and higher drug costs, the study still projects the TPP will cost manufacturing jobs and exacerbate our trade deficit.

United Steelworkers (USW) International President Leo W. Gerard:

“This report validates that the Trans-Pacific Partnership (TPP) is not worth passing. In the past, similar reports have proven to widely underestimate the negative impact of trade agreements on American workers and the economy. This report as mandated by law indicates the TPP will produce, almost no benefits, but inflict real harm on so many workers.

“Because of this history, average Americans know that economic projections based on rosy scenarios always end up the same. They pay the price with lost jobs, stagnating or declining wages and rising income inequality as Wall Street profits.

“As the report was being finalized for publication, TPP proponents were touting other biased and optimistic studies in an attempt to blunt the impact of this official study. It is time that we jettison theory and deal with reality: Our nation’s trade policies are in dramatic need of reform.

… “The ITC should be commended for its thorough evaluation of the proposed TPP and the open process that it pursued. It is clear that they listened to the array of voices that asked to be heard.

“But in the end, this may be the most damning government report ever submitted for a trade agreement. It is clear that the TPP will be DOA if Congress ever decides to bring it up.”

Statement from Michael Stumo, CEO of the Coalition for a Prosperous America:

The report found that US trade performance will worsen under the TPP overall and for the majority of sectors analyzed, including services.

The Commission’s report should be viewed as the most optimistic result possible from the TPP if everything goes right. It is worth remembering that the economic projections in the Commission’s prior reports on Permanent Normalized Trade Relations status with China and the Korea-US Free Trade Agreement were vastly more optimistic than the actual results.

Statement from Richard Fiesta, Executive Director of the Alliance for Retired Americans:

“Most troubling to older Americans, the report fails to take into account the high drug costs that are expected to result from the TPP. Prescription drug costs are increasing much faster than inflation, and the TPP will only make the situation worse. The TPP agreement would enable drug companies to fight the cost-control measures already used by Medicare and Medicaid and may prevent Congress from enacting additional cost-control measures in the future.”

“Today’s U.S. International Trade Commission report offers further evidence that the Trans-Pacific Partnership would be a disaster for working families, communities, and our climate. ITC reports have a record of projecting economic benefits of trade agreements that have failed to materialize, so it is noteworthy that even the overly-positive ITC acknowledges that the TPP would have real costs and estimates economic benefits that are slim.

“One of the costs of the TPP indicated by today’s report is that, by shifting U.S. manufacturing to countries with carbon-intensive production, the deal not only would cost U.S. manufacturing jobs, but also would spur increased climate-disrupting emissions.

“Today’s report is right to note the broad controversy over TPP rules that would empower major polluters to sue the U.S. government in private tribunals over climate and environmental protections. The report gives members of Congress further reason to reject the polluter-friendly TPP so that we can build a new model of trade that protects communities and the climate.”

Statement from International President Robert Martinez, Jr., of the International Association of Machinists and Aerospace Workers (IAM):

“The ITC, which historically has overestimated the benefits of trade agreements, predicts that the TPP will increase our nation’s trade deficit in manufacturing. This means that the corporate driven, secretly negotiated TPP will lead to the export of good paying manufacturing jobs to countries like Vietnam that lack basic human rights. For ordinary Americans struggling to get by this will result in more unemployment and continued downward pressure on wages and benefits.

“That a trade agreement created to boost corporate profits and CEO bonuses at the expense of working families would be so flawed is no surprise. We now have confirmation from the ITC that weak rules of origin for autos and other manufactured goods will only continue the deterioration of U.S. manufacturing. …

About Dave Johnson

Dave has more than 20 years of technology industry experience. His earlier career included technical positions, including video game design at Atari and Imagic. He was a pioneer in design and development of productivity and educational applications of personal computers. More recently he helped co-found a company developing desktop systems to validate carbon trading in the US.